By targeting the mid-market, public-private space through its evergreen funds that offer permanent capital to the sector, Sameer Rizvi’s RD Capital Partners (RDCP) presents a viable alternative for sustainable care home investment and operation.
Sameer set up RD Capital Partners (RDCP) with partner Iryna Dubylovska four years ago.
“We saw the massive opportunity to consolidate a highly fragmented market both in elderly care and specialist care,” Sameer told CHP.
“The sector needs a dominant leader that can be the long-term trusted partner of the NHS and the public sector.”
RDCP Care was established in 2016, one year after the creation of RD Capital Partners, with funding provided by the first of a series of upcoming RDCP Healthcare Opportunities Funds.
The first fund, with only Sameer and Iryna as shareholders, has an evergreen long-term investment approach that Sameer was keen to highlight, given the recent trials of the country’s largest care home providers with their private equity and hedge fund backers and their contractual requirements to exit.
“One factor the sector has continually faced is capital that comes in that only has a three to five year holding period that means they have to constantly buy and sell,” Sameer noted.
“It’s not good for the sector and it’s certainly not good for the elderly residents. What is needed instead is permanent capital and RDCP is one of the only companies bringing this to the sector. We are not buying anything with the idea to exit.”
Today, the RDCP portfolio includes six nursing homes in Midlands and Wales, comprising 254 beds and employing 280 staff.
As CEO and COO, respectively, Sameer and Iryna recruited Rosie Howell and Aneesh Thomas to lead the operational side of the business.
Sameer describes Rosie as RDCP Care’s de facto quality assurance officer who visits all of the homes on a weekly basis to check care quality compliance. Having been in the sector for almost 30 years, Rosie is a qualified nurse who has worked her way up through the care ranks from nurse to service manager to regional manager and now senior operations manager. Aneesh, who is charged with oversight of the four homes acquired from Dignus Healthcare in Birmingham, is also a qualified nurse.
Aside from its evergreen strategy, what makes RD Capital unique amongst investors is its focus on public-private fee payers in the mid-market space.
“The majority of new capital is going into the luxury care home market, ie brand new, five-star care homes with spas and cinemas,” Sameer said.
“The problem with these investments is that the breakeven costs are extremely high. You need beds filled at very high average weekly fees in order to make any money. The build costs are also ridiculous, you are looking at £200,00-300,000 per bed or more. Should a recession happen, which is likely because we have been in a bull market for 11 years, the first segment of the market to get hit will be the expensive luxury care market.”
By contrast, RDCP aims to provide, a “recession proof”, balanced portfolio that is split 50:50 between private and public fee payers.
“Our private fees are set at a cost that most people can afford and the rest of our care is NHS, CCG, local authority funded,” Sameer said.
“This allows us to have a portfolio that will survive any business cycle. We are trying to cater for the UK middle class. It’s the backbone of this country’s economy. I find it a little alarming that the rest of the money is ignoring the most important demographic of the market.”
While the perceived wisdom is there is no money to be made in offering a public-private service, Sameer begs to differ.
“It’s sustainable and people can afford it,” he argued.
“When people cannot afford it, the local authority steps in and so the private-public fee split is not always a major driver in profitability. One of the most important drivers of profitability is a company’s cost of capital, which is why we ensure that we price our deals appropriately. By not overpaying on day one, we do not overborrow/overleverage and thus are able to keep our cost of capital low.
“We have a 33% average EBITDA margin for our portfolio. Our occupancy is around 87% across the portfolio which allows us to maintain this healthy margin. We hope to push occupancy to the 90s to raise our margins higher.”
A third of the company’s EBITDA goes toward deleveraging and paying interest, while the remaining, excluding tax, goes toward capital expenditure and investment into new acquisitions.
The investor and operator targets capex of around £1,000 per bed per year as its upper limit.
Sameer described the company’s ideal purchase as a well-priced asset with a mid single-digit EBITDA multiple.
Acquisitions are focused on fully en-suite, purpose-built assets with over 50 beds and a ‘good’ or ‘outstanding’ CQC rating. While fee levels are dependent on the type of care and location, Sameer said £500 per week was the “bare minimum”.
The company’s first acquisition was an Embrace Care Group home called Kings Bromley, followed by a nursing home sold by retiring entrepreneurs, as well as Dignus Healthcare’s elderly care portfolio. RDCP currently has four live transactions with an aim to grow the business to £50 million in value before the end of the year.
Sameer told CHP the business was also among the bidders for a Staffordshire Council elderly care home lease contract for a group of care homes.
“It’s a very long process, but we are working on trying to win this contract,” Sameer said. “There’s a big push across the country from the NHS and local councils to partner with trusted and reliable private operators where the main priority is care excellence. It’s a very stable income source, so we hope to win those contracts.”
The managing partner said his business would also consider attractively priced, turnaround opportunities, adding he was in the process of bidding on a group in administration.
While the company’s growth strategy in elderly care is focused on the acquisition of good quality care home groups, Sameer said its entry into the specialist care market would be driven by the initial acquisition of an operator, followed by development of new sites.
“The cost to build for specialist care is significantly lower than for nursing homes,” Sameer noted.
“Specialist care is more volatile because it’s usually a five or six bed unit, so every time there is any bed vacancy, your occupancy drops significantly. It’s more volatile but it’s also more profitable. Our average elderly care fees are £800-900 per week.
“The fees for specialist care are about £4,000 a week.”
In terms of technology adoption, Sameer singled out electronic care planning systems as the first likely addition to his portfolio of homes while also noting he was considering CCTV adoption.
Summing up, the entrepreneur said his goal was to have a dominant presence in the elderly and specialist care home market as the partner of choice for the NHS, helping the public sector smooth the problems associated with “transfer of care”.
“The elderly care market is roughly 12,650 care homes with a market value of £45bn,” Sameer noted.
“There are fewer units in the specialist care sector, however, the market value
“Specialist care is even more fragmented, so there’s an opportunity for one player with a good reputation and a focus on care excellence to consolidate and grow. It’s been done in the US where the biggest players control a significant portion of the market. We are doing this here in the UK.”
With his refreshingly different approach to investment, Sameer will be one to watch as the social care sector consolidates in the years ahead.